G20 report warns of ‘global tax chaos’

The international tax system cannot deal with mobile multinational firms that shift profits to low-tax countries, the Organisation for Economic Co-operation and Development says

By PAtrick Wintour and Simon Bowers / The Guardian, LONDON

Coalition member groups want the many hundreds of existing bilateral tax treaties that facilitate global trade to be torn up and replaced with a new model — known as unitary taxation — which they claim would better link the apportionment of taxable profits by multinationals to the territories in which economic activities occur.

Elements of this country-by-country approach have been cherry-picked for a narrow aspect of the OECD’s reform agenda. Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, who has been leading the reform project, said the long-standing debate in this contentious area had become “like a religion” for advocates on both sides, but insisted he remained “agnostic.”

However, he added there was consensus among G20 members that unitary taxation was not a feasible solution.

The Guardian revealed on Monday last week that the US had frustrated attempts by European politicians, particularly the French, for more radical action in this area.

The OECD has signaled that more analysis needs to be done on the new and varied ways business is conducted in the digital economy before a timetable for firm recommendations can be set. It is setting up a new OECD taskforce to carry out this research in the next 12 months.